After Auto Industry Bailout, Detroit Fallout Trails Romney

As Congress and the White House scrambled in the fall of 2008 to confront the most severe economic crisis since the Great Depression, Mitt Romney felt compelled to say what many in his native Michigan would consider heresy: Do not bail out the troubled American automakers.

Government checks would not solve the car companies’ long-term problems, Mr. Romney wrote in an opinion article that he asked The New York Times to publish. The better path, he suggested, was a court-administered restructuring that would leave the companies with costs more in line with the global competition. The article carried the headline “Let Detroit Go Bankrupt,” which critics continue to use against him.

General Motors and Chrysler did eventually enter bankruptcy, and the headline was written by an editor, not by Mr. Romney. Yet more than three years later, the position he took still leaves many of his allies in the business world befuddled. It has also opened up an awkward distance between Mr. Romney and some top Republicans in his native state who insist that the $80 billion assistance plan completed by the Obama administration, expanding on steps taken by President George W. Bush, was the only viable path to save the carmakers from ruin.

But in that tumultuous moment — just after President Obama’s election but before he took office — Mr. Romney had both personal and political reasons to speak out.

He wrote of the experience of his father, George Romney, who as the head of American Motors had turned that company around, and he drew on his own experience as a private equity manager who had remade companies through bankruptcy. At a time when the bank bailout program that Congress passed six weeks earlier had left many on the right angry and concerned that the response to the financial crisis was undercutting free markets, Mr. Romney’s position was in sync with a desire among conservatives to draw the line against further government intervention.

Whether his opposition to the bailout plays as the kind of principled stand that Tea Party voters find reassuring or as an example of the cold, ruthless brand of capitalism that his opponents charge is responsible for his fortune will help determine how Mr. Romney fares in Michigan’s primary on Feb. 28 and likely beyond.

The Michigan Republican primary electorate is expected to be very conservative, defined at least as much by the kinds of conservatives who recoil at government bailouts and are suspicious of union power as it is by those with a more direct stake in the auto industry’s rebound.

“He gets attacked and mischaracterized for wanting to let Detroit die, and that’s not the case,” said Speaker Jase Bolger of the Michigan House, a Republican who represents a district near Battle Creek on the state’s conservative western side. He said Mr. Romney’s opposition to the auto rescue on principle could do the candidate more good than harm among primary voters.

“Autos are such an important part of Michigan’s heritage, but many people saw this as a government intervention that wasn’t going to cure the problem,” Mr. Bolger added.

The politics of the bailout and the industry’s comeback remain complex and not limited to Detroit. After the Michigan primary, the nominating contest moves into states where the automotive industry also has a significant presence: Alabama, Illinois, Mississippi, Ohio and Tennessee.

Some Republicans have criticized Mr. Romney’s insistence that federal intervention was wrongheaded as an example of what they see as his willingness to say anything to win over skeptical conservatives.

“He’s playing the same song as Rush Limbaugh and Glenn Beck,” said Bob Lutz, a former vice chairman for General Motors who said he was still so upset with Mr. Romney that he had cast his absentee ballot in Michigan for Rick Santorum.

“I think all of us in the auto industry who knew what the situation was were profoundly disappointed and, I would say, angry,” Mr. Lutz said. “We all saw it for what it was, which was a political ploy to the right.”

The Obama campaign sees a potential advantage and is moving to seize it. An Obama campaign official said allies will be dispatched across Michigan this week to hold news conferences raising Mr. Romney’s opposition to the auto company loans and attacking his economic policies as beneficial to the wealthy at the expense of the middle class.

Mr. Romney has defended his 2008 plan, most prominently in an opinion article last week for The Detroit News, as essentially a blueprint for the path that Detroit ended up taking. “The course I recommended was eventually followed,” he wrote.

His 2008 opinion article advocated a managed bankruptcy process, one that would help General Motors and Chrysler shed excess labor, pension and real estate costs. He also called for profit-sharing with the unions and for the federal government to invest in new fuel economy technology.

All of those things eventually happened, as Mr. Romney said. Chrysler went into Chapter 11 bankruptcy protection in April 2009. General Motors’ filing followed in June. But Mr. Romney’s detractors say his defense falls apart at “eventually.”

To go through the bankruptcy process, both companies needed billions of dollars in financing, money that auto executives and government officials who were involved with Mr. Obama’s auto task force say was not available at a time when the credit markets had dried up. The only entity that could provide the $80 billion needed, they say, was the federal government. No private companies would come to the industry’s aid, and the only path through bankruptcy would have been Chapter 7 liquidation, not the more orderly Chapter 11 reorganization, these people said.

In fact, the task force asked Bain Capital, the private equity company that Mr. Romney helped found, if it was interested in investing in General Motors’ European operations, according to one person with direct knowledge of the discussions.

Mr. Romney’s Republican allies in Michigan are seeking to shift attention to other topics.

“I think too much time has been spent on this issue,” said Gov. Rick Snyder, who has endorsed Mr. Romney but differs with him on the bailout.

Mr. Romney’s position that General Motors and Chrysler should have immediately filed for bankruptcy without receiving federal assistance, Mr. Snyder said in an interview, was an option that some Republicans found more palatable than providing billions in loans.

But while Mr. Romney’s position could resonate among grass-roots conservatives, it continues to rankle Republicans in the auto industry.

“I fully support an entrepreneurial, free-enterprise capitalist system that must include failure and the consequences of failure,” said Mike Jackson, chief executive and chairman of AutoNation, the largest auto retailer in the country. “I think the American people in principle agree with Mitt Romney. Unfortunately, we were in the midst of a historic, catastrophic, financial meltdown. And it was one of those moments where the reality trumped your principles. You had to hold your nose.”

Mr. Jackson, who said he had voted for Mr. Romney in the Florida primary last month, called the candidate’s position on the bailout “a circle that can’t be squared.”

Mr. Romney’s position is fraught on other levels. As an example of how many different constituencies it touches in sometimes awkward ways, one of his major campaign donors, Stephen A. Feinberg, benefited from the bailout. Mr. Feinberg’s firm, Cerberus Capital Management, owned Chrysler when the government stepped in.

Mr. Romney’s campaign sees some potential advantages beyond a resonance with small-government conservatives in his continuing insistence that the federal government should have stayed out of the car business. They say it demonstrates consistency, a trait Mr. Romney’s critics often say he lacks because of reversals on issues like abortion.

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